Samsung Engineering shares dive on legal dispute

Samsung Engineering headquarters in Seoul

By Kwak Yeon-soo

Samsung Engineering CEO Choi Sung-an

Samsung Engineering shares plunged Monday after the company revealed that a consortium led by Saudi Arabian company Al-Toukhi had filed an international arbitration complaint against it for a canceled desalination plant.

The shares fell 9.9 percent to 15,050 won ($12.7) Monday from last Friday. At one point, the stock fell as low as 14,500 won during trading, the lowest since June 20 2018.

In a regulatory filing, the Samsung Group construction unit said its consortium partners Al-Toukhi and Vision asked the Dubai International Financial Center and London Court of Arbitration to arbitrate a canceled construction project, in which the company was chosen as bidder in 2012 by the state-run Saline Water Conversion Corporation (SWCC) of Saudi Arabia.

The Saudi companies are reportedly demanding about $607.7 million in compensation ― nearly 70 percent of the capital owned by Samsung Engineering.

The power generation and seawater desalination plant project in Yanbu, Saudi Arabia, was halted after the SWCC changed turbine specifications and canceled the project in January 2017.

At the time of the cancellation, the 1.6 trillion won project was about 55 percent completed.

After terminating its contract, the SWCC signed a deal with China's Shandong Electric Power Construction Corporation III to complete the plant.

In November 2017, Samsung Engineering asked the World Bank's International Center for Settlement of Investment Disputes (ICSID) to begin arbitration proceedings against Saudi Arabia.

Samsung Engineering dismissed Al-Toukhi's claims, saying the SWCC was to blame for the discontinuation.

Samsung said it would file a countersuit.

“The claimant argues that the cause of the project's termination lies on us, but we think their argument is weak and unjust,” a Samsung official said. “Therefore, we will file a countersuit in August.”

Despite the plunge in shares, market watchers said the dispute was unlikely to hurt investor sentiment because there were other positive turnarounds this year.

“The general outlook is pretty positive given that it [Samsung] is likely to win several contracts, including Algeria's HMD Refinery and the U.S. PTTGC petrochemical plant,” a KB Securities analyst said.